Donald Trump’s economic miracle has crashed and burned, largely because of his massive tax cuts. The Dow Jones Industrial Average plunged more than 1,100 points today, the largest drop in history. It had fallen by 1,500 points before making a weak recovery.
Trump has bragged repeatedly about the stock surge that took place during his first year in office as evidence of the soundness of his economic policies.
He’s not Tweeting about the stock market now.
The last time the stock market plunged near this amount–777 points–was in Sept. 2008, as the worst financial crisis since the Great Depression brought the economy to its knees.
Stocks stumbled initially after Amazon founder Jeff Bezos, financier Warren Buffett and JPMorgan Chase CEO and chairman Jamie Dimon announced a plan to self-insure more than 1 million of their employees through a new, non-profit company.
The move sent healthcare stocks tumbling, but that was only the beginning.
Because Trump’s tax cuts came on top of an already heated economy, the Federal Reserve signaled that it would raise interest rates to head off the possibility of inflation.
After that, the market began its free fall.
Losses spread to all sectors of the economy today. The Nasdaq fell 273 points on the day (3.78 percent) while the S&P 500 erased its January gains with a 113-point (4 percent) loss, according to media reports.
Trump had one thing going for him when he took office; he inherited President Obama’s fairly robust economy.
He’s boasted about both the stock market and the latest jobs report, claiming credit for both. But a number of significant signals have been pointing to an economic downturn for more than a year.
Consumer spending was weak all last year, and gas prices have steadily risen, taking $1 billion out of consumer pockets with each penny increase per gallon. Gas is up 30 cents a gallon on average since Trump has taken office.
The Federal Reserve could provide the tipping point for a recession.
The central bank raised its benchmark short-term interest rate by a quarter percentage point last Mrach.
The rate hike, the second since December a year ago and third since last year, is designed to cool the economy and ease inflation by raising the cost of borrowing.
The Federal Open Market Committee increased the target federal funds rate — what banks charge one another for overnight lending — to a range of 0.75 percent to 1.0 percent.
If the Fed comes back with another hike consumers with adjustable rate loans, typically credit cards and home equity loans, will take the hardest hit.
Small businesses will also find the cost of money higher, and mortgage rates will rise making it more expensive to buy homes, according to USA Today.
That does not bode well for consumer spending. As costs rise, consumers will pull back.
There is some debate whether the Fed rate hike is necessary, but the Fed seems determined to stay the course.
While Trump seems to have had a more direct impact on the stock market–it jumped following his election to a historic high–some economists have been predicting a significant pullback for the past year.
Dan Wiener, who runs the Independent Adviser for Vanguard Investors and runs money as president of Adviser Investments, told investors in a client note to expect as much as a 20 percent market correction.
That’s been the historic norm over the past 30 years. The stock market has declined an average of 14.3 percent from high to low on an intrayear basis, he said.
Another factor weighing against the stock market is its historic bull run. The market bottomed out in March eight years ago during the Great Recession.
Since then, the benchmark S&P 500 has risen almost 250 percent, not counting dividends, during Obama’s two terms.
Sandy Jadeja, chief market strategist for Master Trading Strategies, predict ed last year the Dow could tumble by 30 percent.
What makes his prediction scary is Jadeja’s previous record for calling market crashes. For example, he predicted the August 2015 “Flash Crash” 18 days before it hit, according to CNBC.
The timeline is rapidly approaching for the next potential Dow meltdown, Jadeja said in a MarketWatch interview.
Stocks are in the midst of a seven-year cycle that only comes around every 84 years, he says. The current cycle dates to 2011 and ends in 2018.
If the economy slips into a recession, Trump and Congressional Republicans will have no one else but themselves to blame.